Farmers need to use their marketing edge
Monday, December 11, 2017
Corn and soybean yields continue to exceed farmers’ expectations across the Midwest, suggesting USDA estimates may have been closer than many had thought. Prices continue to do nothing. Spreads between futures contracts have widened to levels unseen in several years for corn and even longer for beans. This and basis also dropping indicates the market wants farmers to store their crop.
I drove from Minneapolis to southeast Nebraska on Thursday and back on Monday and was surprised how little had been harvested along I-35 and I-80 for this time of year. While I hope the bottom has been hit for the season, I wonder if the full effect of harvest pressure has kicked in. Time will tell shortly.
When reading social media or listening to coffee shop talk it’s easy to be convinced that farmers are on the losing end of the market all the time. While this may be the case for some farmers, savvy farmers know they have an edge that most speculators don’t. The difference: farmers are always raising more crops and speculators really can’t do this.
Why is this better? It’s better, because when farmers sell during a rally (assuming above breakeven points with normal size crops) they should be at profitable levels. The higher the rally the more confident farmers are that the decision was correct to sell. Plus, farmers always have more grain to sell. Even if a farmer sells all of this year’s crop on a major rally, they can and likely should start selling next year’s crop. Speculators don’t look at their positions this way and don’t usually have this type of flexibility.
Many farmers don’t understand how to use their edges to help them be more profitable. Following are some examples for a corn market edge.